In­di­a­b­ulls-LVB merger plan re­jected by RBI

The Times of India (New Delhi edition) - - Front Page - Mamtha.A @times­

Chen­nai: Mort­gage lender In­di­a­b­ulls Hous­ing Fi­nance’s plans to turn into a bank by merg­ing with Chen­nai-based Lak­shmi Vi­las Bank re­ceived a set­back on Wed­nes­day, with the bank­ing reg­u­la­tor re­ject­ing the pro­posal. The re­jec­tion is a par­tic­u­larly hard blow to LVB, as the merger would have brought in cap­i­tal and helped the bank get out of lend­ing re­stric­tions im­posed by Re­serve Bank of In­dia fol­low­ing a bad loan pile-up.

LVB had ap­plied for RBI’s ap­proval for a vol­un­tary merger of In­di­a­b­ulls Hous­ing and In­di­a­b­ulls Com­mer­cial Credit with the bank last April. The pro­posal was ap­proved by fair­play watch­dog Com­pe­ti­tion Com­mis­sion of In­dia last June, but was re­jected by RBI on Wed­nes­day.

“This is to in­form that RBI vide their let­ter dated Oc­to­ber 9 in­formed that the ap­pli­ca­tion for vol­un­tary amal­ga­ma­tion of lndi­a­b­ulls Hous­ing Fi­nance and lndi­a­b­ulls Com­mer­cial Credit Lim­ited with Lak­shmi Vi­las Bank can­not be ap­proved,” the bank in­formed the stock ex­changes af­ter mar­ket hours. Ear­lier in the day, the stock slumped nearly 5% to close at Rs 27. In­di­a­b­ulls’ stock was up 2.5% to close at Rs 240.3 apiece.

It is too soon to com­ment on fu­ture plans of the bank and we are yet to set a date for the board meet. How­ever, the board of di­rec­tors will soon meet to plan the way for­ward for the bank since the merger plan is no longer on the ta­ble,” LVB chair­man BK Man­ju­nath told TOI over phone.

Re­act­ing to the RBI de­ci­sion, Sameer Gehlaut-pro­moted In­di­a­B­ulls said, “Now that the merger will not hap­pen with Lak­shmi Vi­las Bank, the un­cer­tainty of the past five months on the busi­ness is lifted and the com­pany will fo­cus on growth of its core busi­ness of hous­ing fi­nance.” It also said that its board would meet on Oc­to­ber14 to con­sider a share buy­back pro­posal.

While there is spec­u­la­tion on the rea­sons for RBI’s re­jec­tion, sources said sev­eral reg­u­la­tory in­quiries on In­di­a­b­ulls cou­pled with lit­i­ga­tions against LVB could have weighed against the merger. Also the In­di­a­b­ulls group’s links with real es­tate could have been a de­ter­rent. RBI’s re­jec­tion comes close on the heels of the Pun­jab and Ma­ha­rash­tra Co­op­er­a­tive Bank fraud which was trig­gered by its ex­po­sure to real es­tate firm HDIL.

LVB, started by the en­tre­pre­neur­ial Vysya com­mu­nity in Karur in west­ern Tamil Nadu, slipped into re­port­ing losses when it ex­panded its scope of busi­ness from lend­ing to small busi­nesses to larger en­ti­ties. It suf­fered losses of Rs 585 crore for the year ended March 2018, which ex­tended to a loss of Rs 894 crore in March 2019.

These el­e­vated lev­els of losses along with bal­loon­ing bad loans, in­suf­fi­cient cap­i­tal ad­e­quacy and neg­a­tive return of as­sets for two con­sec­u­tive years, forced the RBI to im­pose re­stric­tions on the bank and its ac­tiv­i­ties by plac­ing it un­der Prompt Cor­rec­tive Ac­tion (PCA) on Septem­ber 28. The bank’s bad loans stand at 17.3% of its ad­vances while it is 7.53% for mar­ket leader SBI as of June 30, 2019.

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.